CRISIL revises outlook on Vedanta's loans from 'stable' to 'negative'

The change reflects the possibility of higher-than-expected financial leverage and lower financial flexibility with reducing ratio of cash surplus to one-year maturities for FY23 and FY24

Rating agency CRISIL has revised outlook on Anil Agarwal-controlled Vedanta Ltd’s (Vedanta) term loans and debentures from “stable” to “negative”.

The change in outlook reflects the possibility of higher-than-expected financial leverage and lower financial flexibility with reducing ratio of cash surplus to one-year maturities for FY23 and FY24. This is due to increased cash outflow from Vedanta, in the form of dividends, towards large maturing debt obligations at its parent company Vedanta Resources Ltd (VRL).  

CRISIL reaffirmed the rating “AA” for long term loans and debentures and ‘A1+’ rating on the commercial paper and short-term bank facilities.

There is increased refinancing risk at VRL which has annual debt maturities of around $3 billion each in FY24 and FY25 with high near-term maturities of about $1.7 billion in the Q1FY24, rating agency said in a statement late last night.

CRISIL Ratings understands that the company is in discussions with lenders for refinancing upcoming maturities of Q1FY24 and the same is expected to be completed by end of March 2023 or early April 2023.

That said, the progress on the refinancing plans has been slower than expected, thereby resulting in increased dividend payout by Vedanta and reduced cash and cash equivalents during the fiscal.

The dividend payout by Vedanta for FY23 will be more than Rs 40,000 crore, including dividend payout by Hindustan Zinc Ltd (HZL) to its minority shareholders. This is expected to result in a cash balance of less than Rs 20,000 crore for March 2023 against more than Rs 30,000 crore in March 2022.

In case of any further delays in the expected refinancing plan, dependence on dividend payouts by Vedanta will increase. Vedanta currently has cash balances only to cover for VRL’s maturities for the H1 FY24, and hence will be a key rating sensitivity factor, CRISIL said.

CRISIL said while maturities of the first quarter of FY24 should be paid off, it understands that VRL will look to refinance and partly repay the maturities beyond the first half of FY24 as well. However, timely closure (at least 3-6 months before) of a credible refinancing/repayment plan for maturities of the H2 FY24 and thereafter, will be a key monitorable as VRL faces significant refinancing risk till FY25.